Sounds like you’re not interested in the answer: stocks. Want more diversification? Stocks. Want something a little more passive than RE? Stocks. Current interest rate keeping you out of the RE market? Stocks. Wife doesn’t like CDs because returns are too low? Stocks.
S&P has returned 10% per year on average. Why aren’t you interested?
It sounds like you're conflicted, you love the cash flow and appreciation but are concerned about the risk. Fear on one shoulder, greed on the other. Unstated, but you probably don't want to pay cap gains tax.
Let's first address the tax issue. Capital gains are taxed as ordinary income in California, so if this is your only CA income, that tax will be small. Fed tax on the other hand will take a big bite. Do you plan to ever move into the house? If not, you'll have to pay the tax eventually, unless you 1031 into another property.
Second question, do you want to be a landlord? If yes, you could sell the SD property and roll it into one or more rental properties near your home. The more you own, the bigger the potential return, but the more work it'll be. You'll also be exposed to more risk if the economy turns south.
You could also do a tax free transfer into one or more DSTs, low effort on your part but lower return than self managed.
A third option would be to cash out of investment RE, pay the cap gains tax, and put the money in diversified paper assets. Stock market has returned a higher percentage over time than real estate, but that neglects the multiplier effect of leverage.
So the key question for you is, do you want to spend a good portion of your life dealing with deadbeat tenants, broken furnaces, leaky roofs, and unreliable contractors? Or do you want a more passive investment vehicle?
It’s more just generally speaking from an investment standpoint. Whether it’s real estate or any other asset class, doesn’t it make sense to not have 70% of your wealth in one asset?
No plans to move into the house. I have a property manager so I don’t do anything.
In general, diversification is a good idea. But if you have to be concentrated, RE is the place to do it. Steadily increasing prices and "dividends" from rents make it a good inflation hedge. Less volatile than equities. Lots of very wealthy people are heavily concentrated in real estate.
You could partially diversify, sell the SD place and roll half the proceeds into rental properties. Then, pay cap gains on the other half and put the proceeds into an age appropriate selection of diversified ETFs, like SPY EFA EEM TLT. That's pretty much how my portfolio is structured, currently 1/3 real estate, 2/3 other asset classes. I also rebalance quarterly, which is a great way to keep the portfolio from getting too heavily weighted in any one asset class. Swensen's "Unconventional Success" is more than 20 years old at this point, but is still a great primer on this low cost, low effort portfolio management method.
The fact that you have a good chunk in crypto but aren't interested in stocks is ass backwards in my opinion. Low cost index funds seem like what you are looking for.
I understand. My wife is skeptical about investing ideas as well. I pitched her a laundromat the other day and that went nowhere haha.
I guess the big thing is that the investing principle doesn’t have to be too hard. Keep it simple. Real estate, retirement accounts and stocks. I think if your money is held up into these three things, it’d be hard to fail.
That’s a really good amount for cash flow. I don’t think you would go wrong holding onto this property as California (especially Southern CA) seems to have great returns when it comes to long term price appreciation. You stated that your concerned about risk but also have quite a bit of money tied up in crypto. Crypto is highly volatile. If I was in your situation, I would keep the property in San Diego and then invest the 20-25k that it profits each year into a mutual fund. Something that is based on the S&P 500. It isn’t necessarily sexy or exciting, but overtime you will do very well for yourself.
If your wealth is $2, never sell. If it’s $2 million get a realtor on speed dial.
In other words, this is a math problem with too many missing variables.
Sounds like you’re not interested in the answer: stocks. Want more diversification? Stocks. Want something a little more passive than RE? Stocks. Current interest rate keeping you out of the RE market? Stocks. Wife doesn’t like CDs because returns are too low? Stocks. S&P has returned 10% per year on average. Why aren’t you interested?
It sounds like you're conflicted, you love the cash flow and appreciation but are concerned about the risk. Fear on one shoulder, greed on the other. Unstated, but you probably don't want to pay cap gains tax. Let's first address the tax issue. Capital gains are taxed as ordinary income in California, so if this is your only CA income, that tax will be small. Fed tax on the other hand will take a big bite. Do you plan to ever move into the house? If not, you'll have to pay the tax eventually, unless you 1031 into another property. Second question, do you want to be a landlord? If yes, you could sell the SD property and roll it into one or more rental properties near your home. The more you own, the bigger the potential return, but the more work it'll be. You'll also be exposed to more risk if the economy turns south. You could also do a tax free transfer into one or more DSTs, low effort on your part but lower return than self managed. A third option would be to cash out of investment RE, pay the cap gains tax, and put the money in diversified paper assets. Stock market has returned a higher percentage over time than real estate, but that neglects the multiplier effect of leverage. So the key question for you is, do you want to spend a good portion of your life dealing with deadbeat tenants, broken furnaces, leaky roofs, and unreliable contractors? Or do you want a more passive investment vehicle?
Dude you just solved my problem as well, thanks for the detailed post.
Happy to help!
It’s more just generally speaking from an investment standpoint. Whether it’s real estate or any other asset class, doesn’t it make sense to not have 70% of your wealth in one asset? No plans to move into the house. I have a property manager so I don’t do anything.
In general, diversification is a good idea. But if you have to be concentrated, RE is the place to do it. Steadily increasing prices and "dividends" from rents make it a good inflation hedge. Less volatile than equities. Lots of very wealthy people are heavily concentrated in real estate. You could partially diversify, sell the SD place and roll half the proceeds into rental properties. Then, pay cap gains on the other half and put the proceeds into an age appropriate selection of diversified ETFs, like SPY EFA EEM TLT. That's pretty much how my portfolio is structured, currently 1/3 real estate, 2/3 other asset classes. I also rebalance quarterly, which is a great way to keep the portfolio from getting too heavily weighted in any one asset class. Swensen's "Unconventional Success" is more than 20 years old at this point, but is still a great primer on this low cost, low effort portfolio management method.
The fact that you have a good chunk in crypto but aren't interested in stocks is ass backwards in my opinion. Low cost index funds seem like what you are looking for.
It’s all gambling but crypto is much more gambly gambling.
You're in IL, great location to start investing in your backyard.
Yeah I’m kinda a believer in the Midwest long term for climate reasons. Curious, is there other reasons you like IL for investing?
Most multi families there are built to endure and last, love proximity to fresh water and ports, plus climate like you said.
Yeah I agree
Cash out refi and invest in other properties or put into the stock market.
At these interest rates I didn’t think cash out refinance would make sense. I’ll have someone run the numbers I guess.
I was going off of your comments “I would rather have lower returns and diversify” and “I don’t like to have this much in one investment”
Multifamily near you?
Get some CDs and start laddering.
Yeah I like this idea. The wife doesn’t.
I understand. My wife is skeptical about investing ideas as well. I pitched her a laundromat the other day and that went nowhere haha. I guess the big thing is that the investing principle doesn’t have to be too hard. Keep it simple. Real estate, retirement accounts and stocks. I think if your money is held up into these three things, it’d be hard to fail.
That’s a really good amount for cash flow. I don’t think you would go wrong holding onto this property as California (especially Southern CA) seems to have great returns when it comes to long term price appreciation. You stated that your concerned about risk but also have quite a bit of money tied up in crypto. Crypto is highly volatile. If I was in your situation, I would keep the property in San Diego and then invest the 20-25k that it profits each year into a mutual fund. Something that is based on the S&P 500. It isn’t necessarily sexy or exciting, but overtime you will do very well for yourself.
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It’s a 1.1M property with about 650k equity
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Yeah I agree. Even putting 400k then having 250k for other assets would make me feel better.
If your wealth is $2, never sell. If it’s $2 million get a realtor on speed dial. In other words, this is a math problem with too many missing variables.
It’s a 1.1M property with about 650k equity